A two-judge bench of the supreme Court comprising Justices A K Sikri and Ashok Bhushan recently ruled that mobilization fees paid to Non-Resident to move oil rigs from foreign to India is taxable in India as the same is subject to section 44BB of the Income Tax Act, 1961.
Assessee, Sedco Forex International Inc, entered into an agreement with ONGC for hire of their rig for carrying out oil exploration activities in India. As per the said agreement, they paid mobilisation fees on account of mobilisation/movement of rig from foreign soil/country to off-shore site at Mumbai-India.
The question before the Court was that whether aforesaid amount received is to be included for computation of deemed profits and gains of the business, chargeable to tax under Section 44BB of the Act.
Before the Apex Court, the assessee urged that it is neither income receipt nor deemed to be received in India. According to them, it is in respect of services outside India and, therefore, does not accrue or arise or deemed to accrue or arise under Section 5 read with Section 9 of the Act.
The department and the appellate authorities including the High Court held that mobilization fee payable to non-resident assessees for transportation of oil rigs is taxable u/s 44BB of the Income Tax Act.
While examining the provisions of section 44B, the bench pointed out that in order to attract the provision, two conditions must be satisfied, namely, (i) assessee has to be a non-resident; and (ii) assessee should be engaged in the business of exploration etc. in mineral oils of the nature specifically spelled out in the provision.
Upholding the High Court order, the bench ruled that the said fees being fixed amount that might be less or more than actual expenses incurred and contract in question being indivisible one, amount received by assessees was to be included for computation of deemed profits and gains of business, chargeable to tax under Section 44BB of the Income Tax Act.
The bench, after analyzing Sections 4, 5 and 9 of the Income Tax Act, rejected the assesees’ contention that Section 44BB is only a computation provision, is also not entirely justified.
“In the first blush, assessees may appear to be correct in their contentions that Section 44BB falls in Chapter IV of the Act. Insofar as computation of income from ‘Profits or Gains of Business or Profession’ is concerned, it has to be computed as per the provisions of Sections 28 to 43D(2). However, certain provisions are made for providing special mechanism for computing the income on presumptive basis in case of non-resident and it includes Section 44BB as well,” the bench said.
Read the Full Text of the Judgment Below
